German banks back government line on Greece: banks chief

By IBT Staff Reporter On 06/11/11 AT 10:32 AM

Germany's banks association Saturday backed government proposals to get private creditors involved in the cost of a second bailout for Athens, although it was not clear if they favored a controversial bond swap.

Berlin is pushing hard for commercial banks to contribute to the cost of an estimated 120 billion euro ($172 billion) bailout, but is struggling to convince the European Central Bank and ratings agencies it can do so without triggering a credit default.

Officials say the ECB argues that a swap, favored by German Finance Minister Wolfgang Schaeuble, would be judged a default and make Greek bonds unacceptable as collateral, potentially leading to a collapse of the Greek banking sector.

Asked if the banks went along with a resolution by the German parliament urging private creditors to contribute, BdB Managing Director Michael Kemmer told a radio interview: What Herr Schaeuble has proposed is in principle not unreasonable. Our members would also participate.

It was not clear if that meant he supported the idea of a swap or just of private creditors becoming involved.

Schaeuble urged parliament Friday to back additional aid for Greece but said the banks' participation in a new package was unavoidable and that he favored a swap that would push out Greek debt maturities by seven years.

The head of the Eurogroup of euro zone finance ministers, Jean-Claude Juncker, rowed in behind Berlin's hard line in an interview on German radio, but said that any solution must be agreed with the ECB.

I am of the opinion that there will have to be a contribution from private creditors. There must be a voluntary, soft restructuring, he told Inforadio.

We cannot push this private creditor participation through without the European Central Bank, or against it.

Asked how such participation could be arranged and kept voluntary, he said: We are discussing it.

RISING COST

Euro zone official sources told Reuters Thursday that the new international bailout being put together for Greece was likely to total around 120 billion euros, instead of the 90 billion euro figure previously suggested by officials.

Asked about the 120 billion euro figure, Juncker said: The figures being floated around in the public are, in their totality, correct I do not believe however that euro zone states will have to stand up for this sum alone.

Part of the poker game going on is an effort to convince all the banks involved that it is in their interest to take on future Greek debt in aid of avoiding a full-scale default on existing loans.

The BdB had taken a stiffer line earlier this week, saying that the banks' involvement -- previously planned only for after 2013 -- was a last step and that that point had not been reached.

Kemmer reiterated that the participation of private creditors should only be on a voluntary basis but that a disorderly default for Greece must be avoided.

In principle, it is correct that the investor who is holding the paper, which is filled with risks, has to attend to those risks too, he said.

We cannot afford to have a further crisis of confidence. On top of that it is not only the banks which are affected... A disorderly default could also affect life insurers and old age retirement payments, he added.